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AP Photo/Susan Walsh

With the announcement of a settlement of the DOJ lawsuit against the US Airways - American merger, who are the winners and losers from the deal?

Winner: The New American

It's obvious, but the biggest winner here is clearly the merged airline, which got out of the DOJ action relatively unscathed. Yes, the loss of the 44 slot pairs at Washington Reagan is painful to a degree, especially given that Reagan was consistently the most profitable operation for pre-merger US Airways. But to put everything into perspective, the divested slots at Reagan and La Guardia represent less than 0.25% of the merged carrier's capacity - a drop in the bucket in aggregate. And the gate divestitures and service commitments required by the settlement are all things that the merged carrier would have done anyway with the possible exception of Phoenix (I'll address that below).

Loser: The Department of Justice

Let's be frank; the DOJ settled because it had a weak case. The case was based on spurious reasoning and analysis, as I outlined in my breakdown of the lawsuit and there was a significant chance that DOJ might lose in court, which would be even more catastrophic from their perspective than allowing this merger to continue. Quite simply put, if the DOJ had lost this lawsuit, it would have been effectively powerless to stop future airline industry mergers. By settling here, they at least have a leg to fall back on in prosecuting future mergers, though it will need a much better case.

Winner: US Airline Industry

The merged carrier will reduce capacity over the next couple of years, because as the costs of the pre-merger US Airways operation rise to match those of pre-merger American, a significant proportion of pre-merger US Airways' network, perhaps as much as 15% will become financially unviable. The reduction in capacity will drive up fares and profits at network carriers, and give ultra-low cost carriers like Spirit and Frontier an even larger fare gap with which to increase their traffic.

Winner: Phoenix Sky Harbor

The commitment to maintain all of the pre-merger hubs is mostly a formality, except in the case (potentially) of Phoenix. Some analysts have suggested that Phoenix, which is a low yielding hub with a major competitive presence from Southwest, could get squeezed out in the combined carrier's network by Dallas Fort Worth to the east and Los Angeles to the west. At the very least, it was certain that the current operation would have been downsized. (My projection was for about a 33% capacity reduction and a decrease in daily departures to 250 from 300, achieved by flipping the current mainline to regional ratio of 2:1) But now? We'll see whether the commitment to maintain the Phoenix hub "consistent with historical operations" can be enforced by the DOJ. But if it can, it guarantees that Phoenix will stay as a hub for at least three more years. And the interesting undercurrent here is that Southwest's costs are rising, which means that the competitive environment in Phoenix could be a whole lot rosier three years from now.

Because the merger has gone through, much of the international operations at the Charlotte Douglas hub are rendered obsolete. The recent trans-Atlantic expansion was primarily to Star Alliance hubs, which will likely die out when US Airways moves over to one world. Most of the Caribbean flights and the flight to Rio are much better served from the much larger market of Miami. To be clear, Charlotte will not lose its hub. But its post-merger international operation will be much smaller than it is currently.

The main benefit to business travelers is the vastly expanded network. Pre-merger American didn't have strong coverage of Europe and the East Coast, while pre-merger US Airways didn't have strong service in the Midwest or to Asia. Now those network weaknesses have been alleviated, and business travelers finally have a viable third competitor to United and Delta. Keep in mind that business travelers tend to make purchase decisions more on network coverage and schedules than on prices. Before they might not have been able to use US Airways or American as a primary provider to supplement Delta and/or United but now they can. And ironically enough, fares for business travelers will probably go down some thanks to increased competition for corporate contracts. Skimped on the infographics....

Loser: Leisure Travelers

But for the average leisure traveler making an independent purchasing decision, fares will increase substantially thanks to the reduction in capacity. So for a certain segment of consumers, the merger is bad news, though the growth plans of ULCCs like Spirit and Frontier should help offset this some.

Winner: JetBlue and Southwest (and U.S. low cost carriers in general)

These two carriers will likely get the lion's share of divested slots at perhaps the most lucrative airport in the entire country. I'm not sure why Southwest, as the nation's largest airline with fares that are just as high as those at American, Delta, and United, is being treated by the DOJ as an underdog low cost carrier, but it's clear that they're a winner in this deal. And they might be able to get access to the two gates being divested at Dallas Love Field, which would be a major boon to their gate restricted operation there, which will no longer face Wright Amendment driven geographic restrictions from next year onwards. And of course the other low cost carriers, most likely Spirit, Frontier, and Sun Country will be able to bid for these slots as well.

Loser: Small Cities

Don't let the DOJ's PR about how the new American will have to maintain small city service at Reagan fool you - a significant chunk of the small cities up and down the East Coast that US Airways currently serves will lose service to Reagan entirely thanks to this settlement. The merged carrier has to give up 44 net slot pairs at Reagan, and has already gone on record as saying that it will maintain high frequency services to pre-merger American's hubs even after the merger closes. Roughly 20 of these slot pairs can be found without substantially reducing service to small cities, but the remaining 24 slots have to be distributed across US Airways' existing network. Whether this means frequency reductions to several smaller cities or outright termination of services to a few cities, the fact remains that for consumers in small communities up and down the East Coast, this settlement will lead to higher fares, less choice, and even loss of nonstop access to Washington Reagan.